The pound will weaken substantially in the coming months as policy-makers
affirm commitments to keep interest rates at record lows.

Morgan Stanley predicts that sterling will fall from a current value of around $1.56 to $1.48 in three months’ time – a 5pc fall – as Bank of England Governor Mark Carney continues to pursue measures to stimulate the economy.

A series of positive economic news has boosted the pound recently, sending it to eight-week highs against the dollar, but Morgan Stanley’s head of foreign exchange strategy Hans Redeker said significant slack remains in the economy and that Mr Carney may even pursue an expansion of the Bank’s £375bn quantitative easing programme.

The Bank plans to keep interest rates at a record low of 0.5pc until unemployment falls from its current 7.8pc to below 7pc.

“There is a substantial output gap in the UK, which will require several years of good economic performance to close,” Mr Redeker told Bloomberg.

“The Bank will make it clear pretty soon that it is focusing on the output gap.”